Q3 2022 Consensus Cloud Solutions Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the consensus Q3 2022 earnings call. My name is Paul and I will be the operator assisting you today.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
On this call from consensus will be Scott <unk>, CEO , John neighbor Golf, CFO , Jim Malone, CFO , and Adam <unk> Senior Vice President of Finance I will now turn the call over to Adam from Senior Vice President of Finance at consensus. Thank you you may begin.
Good afternoon, and welcome to the consensus Investor call to discuss our Q3 2022 financial results other key information and reaffirmation of our 2022 guidance. Joining me today are Scott to Rekey CEO , John never golf.
And Jim Malone CFO .
The earnings call will begin with Scott, providing opening remarks, John will give an update on operational progress since our Q2 Investor call and then Jim will followed up to discuss our Q3 2022 financial results and 2022 guidance.
After we finished our prepared remarks, we will conduct a Q&A session at that time, the operator will instruct you on the procedures for asking a question.
Before we begin our prepared remarks allow me to direct you to the Safe Harbor language on slide two as you know this call and the webcast will include forward looking statements.
Such statements may involve risks and uncertainties that could cause actual results to differ materially from the anticipated results.
Some of those risks and uncertainties include but are not limited to the risk factors outlined on slide three that we have disclosed in our SEC 10-K filing as well as a summary of those risk factors that we've included as part of the slideshow for the webcast.
We refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements now let me turn the call over to Scott.
Thank you Adam.
I would like to touch on several areas before handing the call over to John and Jim for more details on our operations Q3 financial results and the reaffirmation of our guidance.
This was another very good quarter for consensus in light of high inflation and the volatility in our economy, we were able to produce a record quarterly revenue by growing seven 5% versus Q3 2021, we continue to operate at healthy EBITDA margins of 53, 5% consistent with our guidance of between 50 and 55%.
These results were driven by continued strong strong performance by the corporate business, which grew 19% versus Q3 2021, 14% of which was organic.
In addition, this is the ninth consecutive quarter of corporate revenue growth its ninth straight quarter of ARPA growth up more than 15, 9% versus Q3 2021.
Our so <unk> had good results notwithstanding continuing FX headwinds, which primarily affect this channel of revenue.
Also as we discussed last quarter, we implemented a price change to approximately 30% of the base during the quarter. We expected that we would experience a similar cancel rate to Q2, given the additional cancels expected at the higher price point I am pleased to report that the cancel rate of three 6% was only modestly higher.
<unk>, then our Q1 cancel rate and 27 basis points lower than Q2.
We believe these FX headwinds will continue throughout the year, Jim will provide more detail on the financial performance for the quarter as well as for each channel of revenue.
As was noted in our press release, we have received the authority to operate in the Veterans administration as we had expected in September .
<unk> the VA have been working to develop a plan for rolling out the solution across more than 2000 facilities within the VA system that plan is in progress.
We now have interest from seven other federal agencies up from three last quarter, and we'll begin working with them to understand better their needs John will provide additional details on each of these areas in his portion of the presentation.
Despite the tight labor market, we have continued to make progress in our overall hiring with a focus on our technical team and filling out our staff as a Standalone company. We ended the quarter with 575 employees I'd like to welcome all of our new employees, who have joined US since our last earnings call.
We also celebrated the one year anniversary of the spin from our former parent Ziff Davis on October 7th of this year I.
I would like to congratulate all the employees for their arduous work to complete the separation, we were able to finalize the last payments to Zip regarding transaction fees related to the spin Jim will provide you with additional details on those amounts.
There are still some customer accounts of Zip that map to some of our bank accounts, we remit the cash collected on a monthly basis and expect all such accounts to start mapping to our bank accounts prior to year end.
In addition, we assist the ZIP with the additional sale of 500000 shares of our stock, leaving them with an ownership position of less than 6% of consensus.
We now have approximately four years to dispose of those remaining shares.
Before handing the call over to John I would like to provide you with our thoughts on the economic environment and how it is influencing the operations of consensus.
The economy has not improved since our last earnings call and many expect a recession in 2023.
I'm pleased to report that our usage volumes per business day are at their strongest levels due in part to the approximately 40% of our business. It is in the healthcare sector.
However, we are noticing slower decision cycles for our larger customer opportunities.
We believe that this has shifted approximately $3 million of revenue into 2023 from 2022.
Notwithstanding this timing difference as well as the previously mentioned FX headwinds, we reaffirm our 2022 guidance Jim will provide additional color on the guidance. After reviewing the Q3 results in detail.
Finally, we remain liquid with more than $100 million of cash on our balance sheet and the Undrawn line of credit that we put in place in March we remain well positioned for these uncertain economic conditions due to the fundamental necessity of our services the subscription nature of our business, which has approximately 70% fixed revenue and the increasing percentage of our business that <unk>.
Apps to the health care sector, I will now turn the call over to John .
Thank you Scott.
On slide five we can see a summary of our operating results for the quarter.
In the third quarter, we achieved another record corporate sales results closing $8 $4 million ACB and license bookings.
As a reminder, our corporate sales team consists of enterprise field sales and inside sales team focused on small and medium business and the channel program targeting telcos <unk> and resellers.
Sales bookings for Q3 grew 62% over Q2 and represented a 78% increase over Q3 of 2021.
Included in our overall sales number is $2 8 million in advanced interoperability products, including a $1 million in new unit sales.
Our advanced product set accounted for 34% of our overall sales volume for the quarter.
Some notable deals include a major fax deal with change health through our Amazon relationship and the University of California, Irvine Health system.
In addition, we have an expansive go live at <unk>, a large southeastern health care system with nine hospitals and over 300 locations.
This particular implementation is a major integration of our <unk> platform with an epic EMR system overall, our corporate business delivered revenue of over $51 2 million in the quarter and our corporate stream accounted for roughly 53% of our overall topline.
In Q3, Soho saw the expected lift as a result of the price increase implemented in Q2.
While the bulk of those increases were fully implemented in the second quarter. There were a few remaining classes of Soho accounts, who will see the increase as their annual plan renews or when a new sign up from the Q1 Q2 timeframe reaches the six month Mark.
Overall revenues for Soho were up over Q2, and virtually flat with Q3 2021, once normalizing for foreign exchange rates.
Our churn was better than expected at three 6% for the quarter in light of a price increase on approximately a third of the base and close to the cancel rate in Q4 2021 in Q1 2022.
As mentioned last quarter, one of our traditional business practices is to reach into the Soho customer base, when we identify customers, particularly in health care, who could benefit from the expanded feature set in the corporate product.
This has been a successful small sale small scale sales tactic and we're currently scoping a program to do that on a much more expanded basis.
On the product front as Scott mentioned, we're pleased to announce that <unk> has achieved authority to operate or Ato as expected in September .
We are currently working with our partner <unk> and the VA and have identified the first candidates to receive ECE facts, given that we're coming into the holidays and expect an abundance of time off associated with this part of the year. We anticipate that implementation is going to begin in early 2023.
Now since achieving Ato pipeline is of interested government agencies has grown as Scott mentioned and we're working with cognizant pursuing those opportunities.
And a key part of our overall program involves the commitment to security that envelops our entire platform.
Central to this our certifications audits and reviews conducted by recognized third parties that test and validate our security environment.
Last quarter, we shared that our facts environment past High Trust recertification and this quarter. We have also renewed our PCI level, one and two type two certifications.
In addition, the team has started work to get Jay signed ready for its inaugural High Trust review and expect that we will have that work done by mid 2023.
Keeping up with these credentials is vital to our position in the market and it requires planning time and effort on the engineering part.
Is very critical to our success.
The product team continues to make progress with both clarity and harmony. We are still engaged in our first implementation of clarity, making refinements and adjustments at the customer's request.
As we reported earlier.
We have added handwriting recognition and our last round of changes for that to be fully operating in the customer environment is nearing completion.
Progress is steady and our pipeline for other customers asking for clarity remained strong.
The team is also hard at work on harmony.
Our cloud based full communication solution for healthcare.
As we've previously discussed message transformation is one pillar of the harmony solution set.
One of the transformation technologies of harmony is a capability called back to direct now this enables a user from one facility to send the fax documents and our system then transforms that in transit to a secured direct message based on the receivers preference.
This was something that we showcased at HIMSS earlier this year.
Now in Q3, we completed a proof of concept with a large east coast health care provider with facts to direct in a live production environment.
While the overall harmony product will be a late 2023 release, we do intend to introduce capabilities that can help our customers and can drive revenue as they come available.
So we're very pleased with this quarter in which we've had record sales Soho performance in line with expectations achievement of the VA Ato for EC effects in a number of major engineering and product deliveries.
Now I'll hand, it off to our CFO , Jim Malone for a closer look at the numbers.
Thank you John good afternoon.
Before I start to discussion with the piano Q3 performance.
I wanted to briefly discuss our cash position.
As you might recall from previous Investor calls.
We have pointed out the Q1 and Q3 are stronger quarters for cash flow conversion.
As a reminder, we make semi annual interest payments.
<unk> 5 million in Q2 and Q4.
We ended Q3 with $103 7 million in cash our liquidity remains strong to support our operations with the added benefit of the $50 million Undrawn line of credit.
Moving to Q3 results starting with corporate results on slide seven.
Q3, 2022, corporate revenue of $51 2 million was an all time record.
Increasing $8 million or 19% over their prior year period.
Corporate revenue grew $848 4 million or 20% on a constant dollar basis.
The number of accounts at 47000.
Was.
2000.
Higher year over year average monthly revenue per account increased $50 or 16% over the prior year.
Comparable period.
Primarily resulting from increased usage of new large customer acquisitions.
The 14% increase in paid ads and a substantially lower churn rate also contributed to the momentum and double digit growth.
Noteworthy as John stated, we learned several marquee logos.
Our last 12 months revenue retention approximated, 104% consistent with our expectations.
Moving to Soho results on slide eight.
Q3, Soho revenue was consistent with our expectations at $44 7 million.
Okay.
700, <unk> sequential increase over Q2 2022.
On a year to year basis revenue declined a negative two 7%.
Or.
Or a negative 50 bps essentially flat to prior year on a constant dollar basis.
As expected year over year over year revenue decrease was affected by.
By lower paid ads unexpected churn, partially offset by higher average monthly revenue per account.
Driven by a Q3 price increase.
Accordingly, the revenue mix.
Enhanced the contribution to Soho fixed revenue.
Now onto slide nine for our Q3 consolidated results.
Q3 revenue of $95 9 billion was an all time record, increasing $6 7 million or seven 5% over Q3 2021 on.
On a constant dollar basis revenue increased $8 1 million or nine 2%.
Reported adjusted revenue of reported adjusted EBITDA of 51 three was up.
<unk> 4 million or approximately 1% delivering a 53, 5% margin in line with our expectations.
non-GAAP EPS of <unk> 52.
<unk>.
Was <unk> over a five six year over year.
Reflecting higher revenue foreign exchange impact, resulting from a strong dollar and a lower share count.
As noted on the slide Q3 2022 is in line with expectations.
In a.
Challenging economic environment.
Now onto slide 11, and our full year guidance.
As Scott discussed in his opening remarks, we are reaffirming our full year 2022 guidance range.
With respect to full year revenue and EBITDA adjusted EBITDA, we are guiding to the lower end of the range due to FX headwinds and.
And timing of large customer wins and new product adoption.
Our pipeline continues to be robust for the near to midterm timeframe.
non-GAAP EPS is expected to be at the top of our range due to our strong U S dollar, providing a better benefit with respect to euro denominated liabilities.
As mentioned in Scott's opening remarks, we negotiated to final settlement with our former parent regarding oil spin related transaction costs for.
So September 30 balance sheet reflects 900000 due to the former parent representing co mingled cash, which we paid in October .
Both parties have made arrangements for customer payments to be processed in their respective company accounts. We expect this initiative to be completed by year end.
These conclude my formal remarks, now I will turn the call back to the operator for the Q&A session. Thank you.
Thank you we will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove yourself from the queue.
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One moment, please while we begin.
And the first question is coming from Fatima <unk> from Citigroup.
Your line is live.
Hey, great. Thanks. Good afternoon, guys. This is mark on perfect chemo, thanks for taking our questions.
Maybe just.
Scott.
Great.
So maybe just diving into your guidance so all of that I.
I appreciate that.
You guys reaffirmed guidance.
Maybe moving towards a little bit on.
The lower end of guidance.
$3 million shifts.
Enterprise out from 'twenty two into 'twenty three.
Just in terms of giving you guys reaffirm should.
Should we expect.
Any sort of upside or anything to maybe make up that $3 million or less.
More be on the lower end of guidance, where we should expect or shake.
Yeah, Yeah I appreciate the question. So maybe we can unpack this a little bit more.
So if you take actually the two comments together and you look at the full range guidance and you start at the midpoint of 380 <unk>. There was about $3 million of FX headwinds and then another $3 million of we'll call. It customer shifting so that would actually put us below the low end of $3 75 with relative implications to the EBITDA.
So we are making up some ground to get to somewhere above the low end of the range.
One of the things that I think everyone should understand is as the business has evolved.
And we are focused on.
Larger scale <unk> deployments out of our.
Corporate channel as well as the newer services.
These tend to be increasingly lumpy in terms of the timing of the win and their relative contribution within a given quarter I think what John said was extremely important and that is that we're entering a time of the year.
And I think with the uncertainty economy that our view is there are unlikely to be material decisions made.
Impact Q4, and any positive material way from a revenue standpoint, nothing that can't happen.
Very aggressively but I think just where we are at the time of the year a lot of these decisions while they may be made before year end will not have revenue implications for 2022.
So taking that all into account, we're going to do everything we can from Soho to.
Our enterprise channel to generate as much revenue as we can but this is our best estimate as we sit here today.
Great. Thank you guys very much.
Thank you Youre welcome.
Thanks for that.
Our next question is coming from Jon <unk> from CJS Securities. John Your line is live.
Hi, good afternoon, Thanks for taking my questions and commendable job just keeping the guidance even with these headwinds you're seeing.
Okay.
Thank you up on that question.
The pushout that you are seeing on the enterprise side are they healthcare or are they not up to our corporate can you give us a little bit more color on the types of customers are deferring.
I don't think its unique to healthcare per se, but obviously with our concentration, particularly in corporate being approaching 70% of new sales being healthcare, that's really where we are observing it for both <unk> and.
And we're seeing it.
I think a dual issue.
Theres two different kinds of timing one.
Timing is the customer, making a decision to adopt the surface.
Other is they've made the decision, but having the resources to implement.
Some of which we can assist with.
But we cannot do the implementation.
From where we sit without the cooperation of the customer.
And so we've seen it in both cases in some cases.
Timing decision in the first instance in other cases, we're ready to go wherever reasons on our clients' sites, they're not yet ready to go. We're committed we've also found that given the time of the year. There are some institutions that you say, we're not doing anything until Jan I don't want to touch our systems until January so we can't really forced that with respect that decision.
<unk>, we're ready to go we will begin as soon in January as they want to begin implementation.
John do you want to add some additional color.
Yes.
I would echo that I think that in terms.
Yes, even some specifics we can talk about we talked about the change health deal, which is a significant deal for us.
The Lumpiness is evident there is we and anticipated that would be in early Q3 deal wound up being a very late Q3 deal and.
And then there are implementation considerations as we go into Q4 I think the same can be said as we talked about the clarity implementation that is stretching out a bit longer than we thought it would but.
In our estimation, we want that clarity implementation, especially this first one which is going to be a bit of a flagship for us to be as impactful as can possibly be.
Again this is a timing issue it's not a question.
Yes, it's about when and that these things have slipped into 2023.
It's certainly something that in terms of guidance, we're still in the range, but things have moved out a little bit further than we thought that way.
Understood. Thank you and as you move into 'twenty Threes do you catch up with this and do things pushed out in Q1, if you don't and.
And everything slip to the right do you have the capacity to execute all the stuff that maybe you backed up on any new stuff that might come in.
Yes, we have the capacity to execute.
It all comes down to.
Customer readiness and.
How that fits with us where we're fully expecting that we're ending 2023 running we're going through our budgeting process now and we'll of course, we'll have more to say about that.
As we have the fourth quarter earnings.
Got it thank you I'll jump back in queue.
Thanks, John .
Thank you. The next question is coming from Greg Burns from Sidoti <unk> co.
Your line is live.
Good morning.
Just to maybe follow up on the comp.
Commentary about next year from a margin perspective.
Well what would move you towards the top of the low end of your 50% to 55% guidance range next year have you have you made all the investments you needed to make or with the government coming online is there more upfront.
Costs that you need to absorb before you start to recognize revenues.
There is.
Yes, it's a great question I think as John just mentioned look we're.
I'd say in early.
Most mid stages of budgeting for 2003 and Theres a couple of things that are important when you think about the revenue which influences the margin and then the cost side. One of course is the overall economy. So we wanted we want I want maximal data before we lock our budget. So we're going to be slower in doing our budgeting. This year, then we might be in preview.
Shares because I want to see the most data as it relates to how the core customer base is behaving as well as the handicap. Some of these issues, where there's been some slippage from one quarter to another so that's one element of it which will affect could affect where we land on the revenue side on.
On the cost side of it from the beginning we said this is a multiyear program in terms of the investments. So we are by no means done <unk>.
Investing either in our technical sales resources now some of these.
Related to the first question, which is where we land on revenues will influence how much we need and things like professional services additional technical resources additional sales resources in both our inside sales and our enterprise. So it's very much.
Mixed together I will tell you that.
We will have some downward pressure likely on our margins because of the fact that our employee base has grown this year, it's been expensive to hire and we will have the full year cost of those employees next year versus the fractional cost of this year and.
We are.
Most parts still in a mode that is inflationary from a wage standpoint, which affects all employees. So we will look for mitigates against what will be the likely increases in our.
Expenses regarding employees for the portion of our cost structure that is not employee related we have things like telco cost we have external.
<unk> that we have in there.
Third the $60 million to $70 million range, but it's not clear to me whether the increase in labor cost can be wholly offset by finding savings in the other category. So.
Right now it's too early to say I have no reason to believe we will not operate within that range, but I would not necessarily be expecting any upside from our current margin structure in 'twenty three.
Okay, great. Thank you.
Okay.
Thank you.
And the next question is coming from Ian Zaffino from Oppenheimer. Your line is live.
Great.
I just wanted to get a little bit more into the <unk> channel.
You're taking a price and it sort of similar and if I could draw maybe a comparison to what you did during the financial crisis right you took pricing up we saw a little.
Sure Sean.
The customer count side.
But that's sort of <unk> type of weakness that you probably would have seen in the financial crisis. I mean are you expecting something similar this time around or anything to define from what youre doing now versus what happened in.
Yes, there are some similarities but I think look there's also differences partly.
It appeared this recession will be different than the great recession.
One of the questions is what does this recession would look like compared to that I would just make the note that similar to last time, we completed the price change and it was coincident we werent that smart.
Prior to the onset of the great recession, so to the extent, we're not in a recession now, but it's around the corner in 'twenty three it looks like that will be a similar fact pattern. There was though just to be to be clear and to be fair. There was an increase in the cancel rate in <unk> relative to the <unk> performance that had.
Nothing to do with the price change, but was influenced by the severity of the recession, albeit relatively brief in duration.
We suffered increase in cancel rates for maybe a couple of quarters that they started to return not only to the previous mean, but they actually went lower is that a fair overlays for 'twenty three.
Ops.
Because I don't think right now there is an anticipation of the recession will be as shockingly severe <unk> nine but I think there was a belief that might have a longer duration than <unk>. So these are kind of things we have to play around with but yes, getting the price changed substantially done before the onset of the recession is a mitigate Andy.
As a help because quite frankly, I'd, rather have a smaller base of customers.
Steadier better base of customers than a larger base that is more fragile. So it does have that effect that winnowing out some of the weaker customers and generally managing the smaller base is better versus managing a larger but arguably somewhat weaker base, but these are all variables that as I say this is why I want as much data as I can get before.
We lock things down for 'twenty three.
Okay. Thank you very much.
Uh huh.
Yeah.
Thank you and once again, ladies and gentlemen, if you wish to enter the Q&A queue. Please press star one on your phone.
Next question is coming from James Breen from William Blair James Your line is live.
Thanks for taking the question can you just talk a little bit about the growth you saw the effects corporate side.
You call up mid market and the presentation is there anything specific you are doing there from a sales motion sort of drive growth and then.
From a overall cost perspective that you're thinking about.
Potential for recession, and the impact on the overall business.
How do you manage around that and can you keep the margin structure relatively stable.
We see a little bit worse revenue growth. Thanks.
Yes, I'll, let John take the first question because those channels of inside sales and field sales reporting to him.
Yeah, Hey, Mike share some secrets.
And now Tracy.
Yes.
We're obviously very pleased with the inside sales programs I think what we've done is we've taken a program that had traditionally.
<unk> focused on being a part of a web marketing program, meaning that you get hand raisers or you get.
Form fills from businesses that are larger than <unk> business.
The inside sales team does either outreach or follow up.
Those deals what we've been able to do is introduce this idea of a channel kind of relationship that starts to funnel, new and different kinds of opportunities to our inside sales team.
You have folks like resellers or folks who are our managed services providers that are interested in being able to bring backs there.
And their customer sets, we've been successful with expanding into that we have also expanded into specific account based marketing practices. So each of these steps we have sort of builds on the step before to help us continue to move forward with how we sell how we reach out into the marketplace.
And how we identify new opportunities and one of the places that we consistently find new opportunities is by reaching into the Soho base and frankly farming out of the Soho base as we can tell by.
The analytics that we use.
Some of those Soho customers, our members and large organizations, we reach and start that conversation and upsell them into a corporate product that better suits their needs and their business purpose. So I think as time has gone on what we've been able to do with our inside sales team is keep expanding.
Pending.
Kind of techniques that are used in order to drive demand and capture that demand and we've been able to show that that's a fairly bottomless pit of opportunity and that there is always a new idea or a new way that we can think about to continue to drive new business.
And then Jim in terms of the second question.
I think look we put out and we've said consistently we have a range of margins of $50 to 55.
That is our commitment.
Right now I don't see reason why we will not operate that range of 23, I'm not expecting the great recession of <unk>. So.
Something for Kony like that comps.
Maybe we'd have to caveat the statement, but I think based on what most people are expecting we still see a very positive trajectory in terms of revenue growth. The question is how much in 'twenty three but I think it's also important to understand and it's something that we will beat the drum on.
We need to make investments in this company those will continue in 'twenty three because the opportunity is so large so it's not so much about planning for a given quarter in 'twenty three 'twenty three as a whole. So the issue for US is really where do we think we can land revenue wise such that we can measure.
And calibrate if you will the pace of that investment that will be commensurate with the growth in revenue.
Not only were going to shut down and where we look for cost savings and we're recession can be helpful is not in our people.
It is in the other areas of our business I know in <unk>, we were able to make tremendous savings in our telco costs.
Our third party vendors.
And certain marketing programs those are the areas, we'll be looking at.
And quite frankly the.
Type in the severity of the recession will be indicative of the magnitude of the opportunities there, but it's not in our people.
Our people will grow in 'twenty three versus where we are right now in 'twenty two that is a necessity.
In my view, even if it does mean that the margin could be somewhat lower than the current $53 five.
Great and so is it fair to say the investments that you're making to grow the business are in people and to some extent technology.
Yes, well so people building the technology, so yes it yes.
Going forward as we talked about.
At this time of the spin sort of year two.
Would be a heavier investment in the sales piece of it.
Although it doesn't mean there is no investment that will be incrementally based on the technology piece, that's still need to continue.
So these things are sort of balanced and it is basically all people who are either producing the technology on the one hand and are implementing we're selling it on the other hand.
The good news is were supported basically substantially done with the G&A. Unfortunately.
Having been spun.
We had a meaningful amount of people we had to hire this year.
And up an independent public company.
That I don't see persisting into the future.
I think our G&A piece is fairly well set but as these other areas that do.
We will require additional investments. The question is really the pace of it given our expectation of revenue growth and 23 versus 22.
So stay tuned for tomorrow, I know you'd love more detail than that but given where we are right now and given the uncertainty in the economy. I think we have to take all these the state into account and manage it accordingly.
Great. Thanks.
Okay.
And we had a follow up coming from John Todd One thing from CJS Securities.
Yes, John .
Hi, Thanks for taking the follow up I was just curious.
You mentioned a couple of times now that you can detail the recent solo channel to get corporate customers.
It may not be fully being served.
Was wondering how much that has actually occurred in the past few quarters or since the spin.
Much revenue did you pull out of Soho and how much does that grow to both revenue and margin wise, if you put them at corporate.
You can think of it as almost an.
Accidental experiment.
We're the one running the inside sales channel, but we're talking about a few hundred customers per month.
So.
The <unk> of our solar customers or 15 box now you should assume that what's being cleaned off has higher ARPA. So call. It 50 to 60 Bucks. So it's not yes, it's tens of thousands of dollars a month.
But what we have observed is when they go into the inside sales channel two things occur first of all unlike in the solo channel.
The opportunity directly talk to the customers.
Once you can do that.
The availability of services that inside sales have as much faster than Soho, So youre developing a relationship but youre also saying what are your real problems I've got a suite of services you can pick and choose amongst that we've seen where that has occurred.
In most instances at least a doubling of the revenue.
So well.
1000 becomes 40000 alone in the scheme of things, it's not very big on a historic basis and the reason we've never gone through and said you know.
When you look at the Soho channel there is a shifting maybe a 100 grand out of Soho into corporate but it's a rounding error.
But what it did is it gave us the insight.
Can we accelerate that program.
Can we take 10000 or tens of thousands of several customers and bring them into inside sales. The challenges you need more inside sales people to do the outreach to the customer right what that.
That group has the scale to talk to 10000 people in the next 30 or 60 days.
We're in the process of.
Hiring into that group, specifically, so that we can accelerate the pace of taking from Soho into corporate.
So right now the two we feel it's improved let's take a bunch of customers and throw them in to the corporate channel if they cannot be effectively managed.
<unk> got to have the personnel there to make the calls through the outreach get the research done. So that you have a productive conversation and you can in fact double or maybe more than double the ARPA for those customers, but it's a very we think it's a very fertile ground.
But going back to the earlier question was that we are taking you to that one other revenue don't want the cost item too, but that's just not the way the world works. So the question is how much are we willing to go out and hire before that revenue was in hand because.
While it is a fairly quick.
Hit to revenue.
There could be an offset depending on the timing of.
Half a quarter to a quarter, where you got the expense if you don't have the revenue lift.
So these are all the balancing act that we're going through right now, but when you step back and you start with all the quarterly stuff.
The opportunity set in front of us as we look out over the next 18 months. So the balance of this year through 'twenty three 'twenty four includes opportunities like this it includes the clarity opportunities and subsequent customers. The continuation to go after the fax customers, particularly in the healthcare space that are still on Prem.
Other large customers that we've not yet talked about through our integration programs. So there are harmony, which is maybe a modest contributor next year, but more for 2004.
It's just a lot of opportunity here, but key limitation if people.
We just can't take advantage of all of these opportunities as fast as we like and there are some limiting factors because even when we're ready.
As we move upstream of our Counterparties have with ebay and if they don't have the personnel.
And we don't want to be too far ahead of the curve. So this is what we're dealing with right now as we think about 2003, we think about the budget the pace of hiring relative to the revenue opportunity.
But there's a lot of it out there a lot of opportunity out there.
Got it thank you Scott.
The second question just on the Soho piece.
I think you were planning to keep increasing the price across the base that hasn't received price increases yet.
Should we be expecting in future months and quarters number one and number two could you give us a little bit of insight into just the pace of churn in October so far and if its changed from Q3 at all.
Let me answer the last question is no it's continuing in line.
In terms of the pacing.
Remember there is about 10% of the group its international that we're currently not anticipating price changing we did about 30%. So that's 40%.
There is a little under 20% that are annual they get affected as the renewals come up so meaning choose for one and two of next year.
That gets you to approximately 60%.
That is a big chunk.
That are already on special programs I don't I don't have that exact number but it's probably another 40 some points.
Internally, we have all the different we call them offer codes or special situations, where people take multiple numbers of their high use et cetera.
Probably unlikely that many of them get affected Sunday and so you're left with an additional maybe 15% that we actually are taking a hard look at and may very well move forward in terms of price increasing them in the not too distant future.
But we make but but the international right now off the table the non U S or off the table, but let me there won't be on the table in the future, but at least for right now as we think over the next couple of quarters.
There is no contemplation.
Got it so 15, plus the annuals or is that just the annual I am sorry.
$15 plus the analysts you got 15 plus call. It another 15 ish that our annual that have yet to be effective meeting Qs or wanted to.
Understood. Thank you so about 30%, 30%, 50% definitely going to have that just happens as renewals come along on the annual hit a 50% is a decision to be made but I would say, we're leaning more likely in favor of doing it.
Got it thanks Scott.
Okay.
Received a few questions by email so I don't know if theres any more people on the light Q.
I think some of these we have addressed through either the direct.
Repaired remarks or in response to other questions.
But I think we should maybe unpack a couple of these additionally, John one of them is a question about majority operate in the VA.
And fed ramp certification.
Interplay with each other but at the same with a different.
What does it mean in terms of our authority to operate with the VA and what other potential opportunities we have out there.
Yes, the way that works is it a little bit of a hierarchy you have to have.
<unk> shifts and approval of your first.
Government Agency and then they sponsor U two a review for <unk>.
Fed ramp so what's happened is that the authority to operate means that <unk> has met all requirements for the system to.
To transact in production so as to the VA we have.
Full.
Set of requirements and the ability to transact in production and it's all a matter of rolling out now.
The VA then submit that information that it used to come to that determination to the fed ramp marketplace audit committee for evaluation.
We've been told that that committee is backed up about 12 weeks and getting through the submission. So our expectation is that we'll get that fed ramp.
That fed ramp feedback probably in Q1 in January early February .
To get that answer but as of right now the Ato gives us full authority to operate in production with the VA for the stated purpose.
We have another question that came by email I think John touched on these but there is an interesting play here one was a little bit more detail on the change health.
Customer wins and also the UC Irvine contract and where those can lead and then change how it comes through our relationship with Amazon connect so how do those two interplay with each other couple of different questions for John Yes. So we have.
Spent a good deal of time over the last couple of years building up our channel program.
This is really the change health.
The change health win was a product of that.
Amazon marketplace and.
Amazon connect have a good amount of reach.
They have customers, who they sell commercial services to our service is one of those that the Amazon connect T cells. So we're looking forward to continuing that relationship change health.
Lee.
Very large and very prestigious name in healthcare right now.
Something that we're very happy with and remember as we think about these things as we book them and just one thing to say about bookings in general when we talk about bookings, we're talking about minimum commitments and as we've talked about many times what winds up happening is actual revenue comes in in excess of.
Those minimum commitments when the transaction.
The transactions start to exceed minimum level. So when we think about the implications of a change how we think about the implications of the UC Irvine and.
And how those are going to perform in relation to what we quote for bookings generally what we see is that the performance of those customers is going to exceed what we put as far as our measurement of what we booked so we're excited about both of those obviously theres a lot of research. We're very excited about the go lives that way.
Had.
In the southeast as well I mean, that's another one with an epic integration and the wells to our system that we believe is going to be very positive for us going forward.
And then the last question, which I'll take has to do really well I think with capital allocation, but the question was framed we built our cash balances to north of $100 billion, notwithstanding making the various payments to our former parent Ziff Davis that Jim referenced.
The question was any reason for positively purchases. So first of all I'd remind everybody.
Have a umbrella program that covers three years. So we never quote unquote pause the program, but there are depending on our various windows prices that we set which then determine whether there is any execution. There were no executions our repurchases in Q3 because of the stock I guess the good news was did not hit our level. So there were no repurchases.
So we will we set the level as we go forward between now and the next time, we have an earnings call in February to discuss Q4 results, depending on where the stock trades, we may or may not have additional repurchases, having said all of that.
It's not in my view, a bad thing in this environment to build some cash.
There are a few reasons for doing so.
You know you may remember that about a year from now 11 months from now our first tranche of debt not so much that I'm interested in calling it because it's at a premium but for the first time, we could actually buy debt in the open market currently trades at a discount for that that would be a good investment versus buying the stock I don't know what to do but the debt <unk>.
As we get deeper into 'twenty, three but that is an option available to us once we hit the second anniversary date of the spin which would be October seven 2023 also too I think.
In this environment, while we do have the additional line of credit it's not one that I really am anxious to tap into so to the extent, we refine something interesting M&A wise I'd like to build that out.
Cash balances versus having to incrementally borrow.
And speaking of M&A, even though that's not per se the nature of the question.
We continue to look for opportunities, but I would say we are very.
Just cerner.
And the assortment comes on a variety of levels, obviously price as you would imagine we're sensitive to those of you that have followed us historically know that how we get our rates of return is very important to us and thinking through our capital allocation.
Just emphasize going even beyond that as.
As I mentioned in response to an earlier question, we have a lot of organic opportunities in front of us, but I believe are important that we execute against.
One of the things that is of utmost priority is that any M&A that we do like summit is not only complementary to what we're doing but can assist us in accelerating what we're doing but to the extent in any way becomes a distraction from what we are doing organically.
That is a disqualifying factor.
And that is a very narrow lens through which you can look at M&A, because a lot of things need repair or they need substantive integration.
Those at least in the near to intermediate term to meet would be problematic, but having the cash available and be able to act quickly to act on all cash basis is another reason that if such a transaction were to occur would be able to respond quickly without having to increase our borrowings.
I'll now turn it back over to you Paul to see if theres any more people in the queue for questions.
Yes, we did have Jon Cohen from CGS, Jonathan one thing with another follow up John . Please go ahead Sir.
Thanks.
Second follow up just one more on the push out deferrals that you were talking about was any of that the VA with the delayed implementation schedule that you were talking about number one and number two as you run.
What is the expected implementation rate and what you can actually realize from that relationship.
We don't know yet so no to the first question. We don't know the second this is kind of when the <unk> breakdown right now trying to understand that because it will also.
Be influential of how we put into our budget for 'twenty three but right now there is not enough.
Insight to be able to have a plan a rollout that then can map to revenues. So.
We're awaiting its something that cognizant day, the prime is working very aggressively with the VA as well as ourselves but it's.
It is what it is.
Fair enough. Thank you and then the good news is we're ready to go.
We're ready to go but there are many degrees of complexity. So that doesn't involve the VA in Washington D. C. At both individual institutions locally and involves ourselves of boss cognizant I think so.
<unk> taken some time, but to John's point, we're ready to go we're talking a bit.
But.
We're not driving that decision.
Got it best of luck guys.
Thank you.
Thank you there are no other questions from the lines I'll now hand, the call back to Scott to Ricky for some closing remarks.
Thank you Paul we appreciate all of you joining us today to get an update on consensus is Q3 earnings and our outlook certainly for Q4.
We'll be at a high yield conference in.
Booker upon.
November I believe on November the 30th.
There should be a fireside chat there. So we may get some additional updates even though it is a conference geared towards high yield bondholders and then we have a series of conferences coming up in January in fact, three of them in the same week.
The Jpmorgan healthcare conference and the Needham Conference and CGS conference, so quite a balance to be able to attend all of them.
In person at least virtually.
And so there will be additional information before we have our Q1, our Q4 results, which will probably have the second or third week of February at that time, we'll release for guidance to be able to give you more fulsome answers a lot of the questions. You asked today about how much will the VA contribute the largest structure be will our pace of higher.
Randy.
Is the recession in any way impacting our view in terms of revenue generation. So we get it those are all the questions that were interested in too.
So stay tuned over the next 60 or so days will increasingly have answers.
Okay.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Thank you Paul.
Okay.
Okay, all were clear in the conference.